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Thursday, September 8, 2005

If it's not "financially feasible," stay in California

It's a little unseemly during the most mortifying two-week period in recent American history for me to jump back onto the City of Portland's property tax shenanigans. But before the saga of the denial of the tax abatement for the Alexan luxury tower in the SoWhat district becomes a dim memory, I want to continue my followup on the intriguing, if relatively unimportant, questions that it has raised.

What is Portland trying to achieve with all the property tax abatements that it is handing out to developers of condo towers and apartment buildings? In the case of the Alexan, the City Council said the denial was all about the lack of low-income housing for families. The city had conditioned the abatement on a satisfactory level of low-income housing in the building. Although 48 studio apartments at upwards of $850 a month, before parking fees, technically met the guidelines established by the Portland Development Commission and the 200-employee city Planning Bureau, the city commissioners said it wasn't good enough. The 3-to-2 vote was swung when Commissioner Dan Saltzman, who's got to run for re-election next year on a skinny portfolio, came on board in opposition.

But a subsequent exchange on the red hot blog of Commissioner Sam Adams (who along with Fireman Randy joined Saltzman in voting against the abatement) reveals that low-income housing hasn't been what the Portland tax giveaway program was really designed to promote. Mostly the city has been looking only for "density" -- the mantra of the "smart growth"-Metro-wreck-Portland-to-save-Newberg crowd. As long as it's "dense," new housing can qualify for a 10-year property tax holiday in Portland, even if everyone who can afford to live in the development is rich as Croesus.

Take the Merrick Apartments (a.k.a "Burgerville Manor") over on MLK and Multnomah. A ridiculous project, still with lots of vacancies, at least from an exterior inspection. It's got all sorts of problems. The much-touted ground floor retail space went over like a lead balloon. As a salvage move, a big chunk of it has been leased to a realty firm, John L. Scott, for its offices. Retail entrances on two sides of the building are locked, and so they'll stay. So much for pedestrian-friendly. We got another Subway sandwich joint, though. Whoopee. (Unlike the one in our troubled downtown, this one even has a restroom.)

The location is rotten for families, and at least at the outset, the developers were hoping to charge high enough rents that no one would have called the place "affordable housing." I saw a guy outside the other weekend washing his Porsche out of a bucket in a metered parking space. And yet it got a 10-year abatement of taxes. Why? Well, because... it's... "dense."

John Warner, PDC housing guru, explained it this way:

Throughout the 30-year history of the tax abatement, the program's purpose has not been to provide low-income housing. The purpose has been to stimulate housing development in the central city and urban renewal areas by helping to make projects financially feasible. The program has been successful in this regard, producing over 5,000 apartment units. The Alexan project is no exception to this history.

In September 2004, the Portland City Council changed the program to require some affordable units in projects that receive the tax abatement. The Alexan project is the first project to apply for a tax abatement since the affordable housing requirement was added to the program.

The Alexan�s developer and the Bureau of Planning and PDC staffs have never argued that the purpose of the tax abatement was to provide low-income housing. The justification for the tax abatement has always been to make the project, not just the affordable units, financially feasible.

I hate to see Portland become an apartment tower jungle, especially since all the jobs are fleeing to the suburbs. But it's particularly galling to know that the people building these things are paying zilch toward the cost of public services for a full decade. Who needs this?

For Pete's sakes, people! If luxury apartments and condo towers are not financially feasible, then just DON'T BUILD THEM!

Ah, but the beat always goes on in Portland. I was reading in The Hollywood Star the other day that the guy who wants to put a six-story condo project at the already-traffic-choked corner of NE 33rd and Broadway is going to ask for his own 10-year property tax abatement on the ground that it's "transit-oriented development." Give me a break! Sure, the Max tracks run just below there along the Banfield Freeway, but there's no station within nine blocks. And the closest station toward downtown, where presumably the transit-oriented jobs are, is at Lloyd Center, which, hello? Is around 27 blocks away.

A grand total of two buses go by that corner, the 10 and the 77. This qualifies for a 10-year property tax abatement? Does anybody who builds apartments on a bus line now get a tax holiday around here?

And here I thought George Bush was the only one who couldn't manage a tax system.

Comments (40)

i've disagreed with you forever on this, Jack, but i'm starting to come around to your side. My whole point has been that since the population of Portland is increasing, we might as well develop high density housing as opposed to sprawl. However, Portland isn't growing, the suburbs are growing. Thus, why the need for all this new housing in Portland?

Minor quibble - the closest station to 33rd & Broadway is actually the Hollywood Transit Center/Max station, which is still a hike of 10 or 15 blocks. It's further away from downtown, but it's a considerably shorter walk.

The libertarian in me wants to see more people get tax breaks, not less - but the way the current system is structured is unfair and arbitrary.

If we're looking at the increasingly unfair and dysfunctional property tax system, let's remember that abatements aren't the only issue. Fox Tower, completed in 2001, Real Market Value $104,725,000...then assessed at $57,656,730, or 55% of its Real Market Value, by the County. A tax savings of $1,124,490...and not an affordable housing unit in sight.

How many new properties are assessed at only 55% of their Real Market Value?

How they select affordable housing is kind of weird, the Sitka in the Pearl District is renting out 2 bd at $600/month (w/ free hi-speed internet access) and then there are the same affordable unit closer to the river.

The other thing I could never figure out is if you are within any walking distance of light rail, they will only let you offer a min of parking spaces in new development. As far as new bldgs How they select affordable housing is kind of weird, the Sitka in the Pearl District is renting out 2 bd at $600/month (w/ free hi-speed internet access) and then there are the same affordable unit closer to the river.

The other thing I could never figure out is if you are within any walking distance of light rail, they will only let you offer a min of parking spaces in new development. As far as new bldgs

Jack, how does the math on abatements work out in the long run? The condo towers will eventually be taxed, so does the increased property tax in the future fully offset the lost tax during the abatement?

Kari - I always assumed Portland was growing as well. But didn't the most recent census reports indicate that the city in fact WASN'T growing. That Portland's population has remained at about 500,000 for the last five years. And that Hillsboro, Beaverton and Vancouver are seeing all the significant new growth. The Portland Metro area is increasing, but the city itself is staying the same.

Two comments:
1)I don't know that the tax abatements are meant to provide density in the sense that you mean it. I'd call it more "in-fill." The projects lead to a lot more density, I'd guess, because there's a lot more money to be made by a developer if he or she puts up a condo tower instead of a house.

2) "Financially feasible" doesn't necessarily mean that the projects would be a loss without the tax abatements. It probably means that the return on investment without the abatements isn't what the developers want for their investors.

Sorry to post again so soon.
Justin: you're recalling the recent census results that showed Portland not growing, I think. There was also a PSU study released at about the same time showing Portland was growing. I think there was a difference in methodology(?). It was discussed on Jack Bog's site in the recent past. But your point, if restricted to "significant new growth" I think would still hold true. Clark County, for one, is growing like gangbusters.

I am completely against tax abatment system as it is currently used. It seems to function to help line the pockets of the rich developers and people who can afford to buy $500,000+ CONDOS. It's just the latest version of pork giveaways. The people who could most benefit from the a tax abatement (the working poor, the lower middle class and so on) are instead stuck with an even bigger tax bill as the City scrambles to meet a budget that is woefully short partly due to tax abatements on very expensive condos and the tax cuts to corporations.

Case in point- a neighbour of mine here in Buckman who bought a little (and I mean little) house 6 years ago. Her taxes went up so high over that time that she worked two jobs and had two room mates in order to pay her bills. Drove a funky car and so on. Her taxes reached 3,000 per year and she finally said the hell with it, sold her house and moved to Colorado last week. A lot of old-timers in Buckman are leaving because they can't afford the taxes on their houses anymore.

Portland needs to do away with the tax abatment system on any expensive building and instead apply the system to funky neighbourhoods (it was done in the Boise/Elliot neighbourhood).

There's a difference between "low-income housing" and "affordable housing" in Portland and elsewhere. The former refers to housing that's affordable for people with low incomes. The latter merely means that it's affordable to a family in a given income bracket, which is generally some established % of median income, above which you're ineligible to rent it. Everyone tosses the two terms about willy-nilly, and it helps to contribute to the "outrage," but I challenge anyone to find where an advocate of this project implied that $850 studios were "low income. I'll gladly admit I was wrong.

RAH is right, it's more than nine blocks from 33rd and Broadway to a Max station. It's more like 13 to the closest one (at 42nd and Halsey). In the other direction, toward downtown, it's more like twice that distance (to around 10th and Lloyd).

To address the local politicians' arguments, capably relayed by Kari Chisholm, their p.r. consultant: The city's not only losing population, but also jobs, big time. A commenter here recently cited a loss of 30,000 jobs in the city. So why do we need apartments galore? Everyone in them will be doing a reverse commute. More auto traffic. Is this what we want?

Unless we improve the jobs picture in Portland (no plan in sight), "transit-oriented development" will in fact be just the opposite. You wonder if any of our 200 Planning Bureau minions have figured that one out yet.

There is no plan in sight on the jobs picture because that would represent a 180 degree reversal from COP officials' reverse-Robin Hood culture. Self-styled liberals would have to quit prosecuting the little guy and cease offering special protection to big guys. The current cast has no experience in that kind of a kooky scenario.

So you'd need a wholesale regime change. Out with the incumbentcratz, both the elected and unelected. In with a revolutionary cadre of common sense leaders who have demonstrated success in large (read: political) non-government organizations. Clearly, one name-ID leader - likely a retired actor or entertainer - would have to emerge from the pack to lead the charge.

Even if that would happen, such a departure would require adopting the administrative techiniques of successful cities. The Not Invented Here syndrome would have to be relieved. Good luck - the local strain is a more worthy opponent than shower stall mildew!

Many other practical impediments spring to mind.

The rules of the game, such as collective bargaining, would have to be re-codified. Public service provision is moving toward 100% outsourcing, away from direct provision of services and the public employee union stranglehold that goes with it. Progressive local government is trending toward a core employee cohort of contract negotiation and evaluation specialists. Maybe the unions will organize the private contract providers. Maybe not. Such a dynamic will happen sooner on Mars - literally - than in Portland, Oregon.

Why? The sore self-perceived losers would try to spoil the game with ever-escalating vitriol (see The Governator) and that would be hard for the public to stomach for the time it would take to secure the reversal. The leadership knows that because they are true revolutionaries in the Karl Marx mode. And the rope-a-dope slowdown normally works in the favor of preserving existing arrangements and cooling the urge for change.

No, more likely COP (and thus Oregon) will evolve like our sister states in western Europe. We will lag behind our more civilized neighbors thanks to the continuing looting, reverse Robin Hood style.

At some point, PERS-on-autopilot expenses and carved-out tax exemptions will make the Swiss Cheese of tax & regulate liberal public policy simply too thin to support its own weight. Continuing certain core public services will no longer be possible. At that point you don't want to be a bond holder, because the authorities will have been backed into a corner. If they want to stay in business they will have to default and re-constitute, absent the legacy baggage, piled up and left at our feet by our well-intentioned and wrong-minded leaders over the years. It's known as ... bankruptcy.

The tax abatement theory is similar to the trickle-down theory. Tax cuts to the developers will be passed down to the people and everyone will benefit through the creation of jobs and additional affordable housing.

This is a fallacy. Tax abatements allow investors to recover their money faster and with an increased return on their investment. Developers (located outside the city limits) pay no tax, thus pocketing more money by charging the 'going rate' for these condos.

The public foots the bill for the resources used by these buildings and the necessary modifications to the city's infrastructure. And this property is not generating any income for the city. That means less money in the general budget. Which means less services for the public, taxes on our cell phones, increased parking meter rates, raises in our water/phone/electric bills etc...

However, the City is in a bind. Construction is the only job being created in this city. With the state minimum corporate tax at $10, there is no incentive to set up shop in any city. Why do you think Nike is kicking and screaming about the proposed envelopment by Beaverton?

Portland will always be in Oregon and until the state stops cowtowing to corporate interests at the expense of working class citizens, we can expect nothing more that to see construction in the city as it is the quickest fix to a huge problem.

As someone who is in danger of being annexed by Beaverton, I feel Nike's pain and wish them the best in giving Rob Drake pure unadulterated hell. That guy deserves it.

That said, it is rather unfortunate that the rest of us (who don't have the high powered lawyers nor the billions of dollars in revenue) will get sucked into Beaverton with nary a whimper. I wrote Nike and said "can you loan us a few lawyers and help the rest of us?" I received no response.

From an unincorporated perspective, we're already receiving all the "public services" so there's absolutely no need to get sucked into a city and pay more taxes for exactly the same services (or in the case of some cities, *less* services) and have to deal with another layer of government that most of us don't want or need.

NLP2P
said """I challenge anyone to find where an advocate of this project implied that $850 studios were "low income". """"""""""

No one did, of course, and you are spot on with the "affordable" clarification.

However, when the 48 "affordable" Alexan units average only 511 sq ft they quickly become less affordable by not meeting the needs of those who would otherwise choose or be able to rent them.

A disturbing aspect of these units is the rent which was proposed at 870.00.

Trammel Crow made the pitch that market rate for these units would be 1070.00/month thus they would be subidizing by only charging 870.00 if they got the abatement. The PDC bought this hook, line, and stinker.
Tell me someone, where are the market rate studios of 511 sq. ft which fetch 1070.00/mo rent?
Reality and smart business says Trammel Crow was planning on building the small studios in hopes that the market rate would pay the 870.00.
There would have been no rent subsidy at all.
Just $10 million, or more, helping TC build their high rise.

I want to use my property taxes for the next 10 years to help pay for my new house I want to build soon. What a great idea!

The exchange with PDC's John Warner spoke volumes about the world our planners live in.

Their methods involve shrouding and obscuring their true objectives with things like "affordable housing" because public resistance and opposition would be less.

Not nearly as strong as with a program which exempts property taxes solely for the building high density projects.

There's much more.

The Merrick, and others, was also given a System Development Charges waiver. You remember the pizza company charged a SDC of $27,000 for moving across the street?
Zero for the Merrick and many other developments.
That's not all.

Virtually every one of these developments is in an Urban Renewal District which encompassed many acres of existing homes and business surrounding the development. The property taxes from all of the existing properties is skimmed off for at least 20 years to pay for the development's infrastructure. Every single annual increase in property taxes from all these properties does not go towards rising cost of public services.
It goes towards the development subsidy.
That's not all. But too long of a post.

If I remember correctly, a proposed SDC charge of something like $40k was a major factor in keeping the legendary Waddles' restaurant from relocating across I-5 closer to the Jantzen Beach Mall... and isn't that building still empty today?

RAH writes From an unincorporated perspective, we're already receiving all the "public services" so there's absolutely no need to get sucked into a city...

You're getting "all the public services" from who? You want --like Nike-- the benefits of "public services" without paying for them? Use the library, get police services, whatever...maybe you could clarify?

Frank, we're paying for all the "public services" already. We get library services from a county library cooperative which has a separate operating levy, we get police services from the county sheriff, water from Tualatin Valley Water District, recreation from the T.V. Rec Center District... and we pay for all of these by our taxes and user fees. Beaverton can't give me anything I'm not already getting. Any other questions?

Fair enough, and thanks for responding. Jack's "amen" aside...there really isn't ANYTHING you get from Beaverton that you don't pay for? What about all that great city planning? (Please insert laugh track here.)

As one who used to live in the Merrick, I find it rather shocking they got a tax abatement to build the place. Most of the people there were pretty well off, though I only paid about $730 a month. I liked it because of the location - next to Max on fareless square. Though it is around 90% leased at this point, turnover is huge because Trammel Crow is one of the worst management companies around and can't keep their tennants. Why they got a tax break I'll never understand, and you are right, they'll have to give the remaining retail space away.

Are you suggesting that every city I drive through gets to tax me just for the privilege of using their streets? I can see the new signs now... "Welcome to Beaverton, Population 77,500 - put $2 in the toll booth or you can't come in."

"You don't shop in stores in Beaverton?"

Nope... but are you suggesting that if I shop in a store in, say, Tigard - that *they* get to tax me just for showing up? What if I drive to Cornelius? Or Johnson City? Or Walla Walla?

"You don't think you benefit at all from the economic development in Beaverton?"

*What* economic development?

I'd be more than happy to support every square inch of unincorporated area being annexed by a city if that meant the county government would go out of business.

Frankly, I'd rather eat shards of broken glass than voluntarily submit myself to yet another level of government.

Beaverton can be faulted for a number of items, though, pertaining to its annexation policy:

(a) they changed course a few months ago and adopted a much more aggressive stance in annexing "islands" of land -- "islands" they created artificially by working in cohoots [sp?] with Washington County and the State by annexing surrounding streets with little or no public notice, thereby creating unincorporated "islands" of land which they could annex under state law without property owners' consent.
(b) they announced they will veto any effort by residents in Cedar Hills to either annex elsewhere or to create their own city.
(c) they're cherry-picking who they want to annex, and ignoring unincorporated areas in undesirable census tracts (much of the unincorporated Aloha area seems to be wanted by no one), but they've been gobbling unincorporated office parks along Cornell and 26 like they were Beer Nuts. If it's state law, as you say, that they have to annex unincorporated areas, then they can't pick and choose what they want.

He's also amoung the cabal seeking to use the upcoming boondoggle commuter rail to establish a multi-jurisdictional "Urban Renewal" District along the full 14 mile line from Wilsonville to Beaverton. They figured out some way to avoid the mandated public votes in two of the locales.
With that UR distrcit in place Drake and company will be able to skim many millions more from property taxes for their Round-like, SoWa-like developments without public approval.
And of course every jurisdiction is allowed to siphnon away part of that skimming for "management and overhead" to use any covert way they choose.

Other cities, coming soon to Portland. After living in DC and Philadelphia (where a friend of mine pays $2050 for a 1 bedroom), a $1070 studio wouldn't surprise me. The latest Philly high rise went up with comparable studios going for $1495/mo.

I am, however, equally pissed though that these big boys don't pay the SDC.

Multiple lawsuits and many years later, it's still not done. It was a stupid idea from day one and it's still a stupid idea. I got dragged to dinner there one night by some friends, and we sat outside for the "ambience" of screeching light rail trains and gang wanna-bes lurking around the platform.

BTW, I read a couple months ago that they were going to build a parking garage nearby to lure more residents and customers of the businesses at the Round... naturally, not more than five milliseconds later, someone with the city assured everyone that the parking garage would NOT be used as a park-&-ride for the light rail. God forbid anyone does anything to make taking light rail easier.